Introduction to Group Income Protection


  • Colin Fitzgerald, Distribution Director, Legal & General Group Protection

Learning outcomes:

  1. How to provide an effective absence management service should absence occur
  2. How group income protection compares to state benefits
  3. What group income protection consists of

  • |
  • 39 mins 08 secs
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PRESENTER: Hello and welcome to the second video in the Legal & General Akademia modules. In the first module, we identified the size and dimensions of the group protection marketplace, and the opportunity this market represents to you as intermediary advising senior staff of SMEs. In this Akademia unit, we’ll consider employee absence from work, and how providing a group income protection solution can assist both the employer and the employee. Discussing this will be Colin Fitzgerald, Distribution Director, Legal & General Group Protection, and Lorna Berry, Rehab Specialist. There are three key learning outcomes: how to provide an effective absence management service should absence occur; how group income protection compares to state benefits; and what group income protection consists of. But first Colin will offer a recap on module one.

COLIN FITZGERALD: Welcome to our second video in our group protection series. Today, we’re going to look at group income protection. And we’re going to show you how a group income protection scheme and how it will support an employer and employee through the complex journey of absence management. We’ll look at preventative treatments and tools, and how we can maintain employee wellness, and keep employees well and at work. When absence strikes we’ll look at the tools that an income protection scheme can deploy to ensure that expert facilities are made available to the employer and to support the employee. We’ll talk about the payment of benefit to alleviate that financial distress, and we’ll talk about the work that we’ll do together to create a sustainable and effective return to work for the employee, and to bring a valuable employee back into the workplace. And ultimately what we’re really seeking to achieve is to provide the employer with the security they require through the deployment of these expert resources to get a cost effective absence management solution in place.

But before we do that, let’s just recap on where we got to in the first group protection video, the introduction to group protection. So the first thing we did was talk about life assurance, income protection and critical illness as group contracts purchased by employers for groups of employees. They’re easy to access. They have high levels of cover and minimal levels of underwriting specifically to make them easy to deploy. They’re also costed on a two-year basis, so it means that the premium in relative terms to retail markets is actually quite cheap. In addition, we looked at the market dynamics around claims payments, the number of lives covered and developments in those markets, which quite clearly indicated to us that there’s been growth in group protection of 500,000 lives in the past year alone.

In addition to the claims benefits provided, we also talked about the services provided by all insurers in the marketplace, and how they give much more support than just the straightforward payment of claim to both employer and employee, and the family and dependents. We talked about the social good of the payments made in claims and the work that the marketplace does in assisting society at large and relieving pressure on hard pressed NHS resources. We then heard from two intermediaries. So Andy Shiner of the Health Insurance Group talked about how using group protection to inform and educate employees created more stickiness of customer and actually created an income stream for his business. And Martin Pask talked to us about what it felt like to be a new intermediary in the group protection space, and how helpful the market is at large with resources from sales, marketing and documentary support and training to actually help demystify what can be a complex market.

So in module one, we introduced you to the SME market. And so let’s take another look and remind ourselves what we learned. SMEs don’t generally have much in the way of internal support within their business of an HR nature or to support complex staff issues. And this is where we as a marketplace can help them. In the UK, there are 237,000 SME employers employing between 10 and 250 employees, and that includes around 11½ million employees. In the first module, we considered that 40,000 customers in the SME marketplace provide group protection benefits. So that left us with something like 190,000 target customers to go after.

In the group income protection marketplace it’s even more stark than that, with only 10,000 employers providing cover in group income protection to their employees. And of all SMEs that provide some form of employee benefits, most of those only provide those benefits for senior staff and management. Typically SMEs do not have extensive HR support for their employees, and so a cost effective group protection solution could provide much needed support and assistance in a range of areas, but chiefly as part of a group income protection policy to deal with absence management and health and wellbeing support.

Since we last met I can now update you on some of our 2017 market numbers. And we can see that 9,404 death claims were paid in 2017, at a value of just in excess of a billion pounds. The group critical illness market, which is something of a Cinderella, paid £84bn in benefits to 1,180 people. And most importantly for today’s discussion the group income protection market paid £467m in annual income protection benefits to a total of 15,322 families during 2017. Not only saving them from financial hardship, it provided much needed support to employers and saved the state from shouldering the financial burden.

So what else is going on in the group protection marketplace? Well we’re all aware that employers are being expected to play a greater part in supporting their workforce better. As outlined in the government’s improving lives roadmap, which follows a range of reports and pamphlets for government from Dame Carol Black’s paper, the Taylor review, the Stevenson and Farmer review, and the latest policy paper launched by the Department for Health and Social Care prevention is better than cure: our vision to help you live well for longer. The government’s good work plan recently announced that a written statement of rights will be mandatory from day one for all workers, and will be extended to include details of eligibility for sick leave and sick pay from the date of hire.

So what’s clear is that there is a significant interest from central government in what service providers and insurers are doing to improve their expertise and their service standards in managing the health and wellbeing of the UK. So it’s our belief that group incomer protection, and the group protection industry at large, has a significant role to play in assisting employers to meet these growing requirements of government.

PRESENTER: So, Colin, let’s start with the leading cause of absence that resulted in a claim in 2017, what are we looking at?

COLIN FITZGERALD: Well as you’ll see on the screen, mental health is now the largest single cause of long-term absence in the UK insurance marketplace. And I should stress that you’re looking at here is absences that have existed for at least 26 weeks. And when we start to pay a benefit that’s actually what’s happened. So we’ve got real long-term absence here. You can also see that recent research indicates that of the population researched, two fifths are reporting an increase in stress-related absence, and all employers are reporting concerns about stress in the workplace. So it’s a well-known fact that one in four of us will suffer from a mental health incident in our lifetime. And it’s also a matter of conjecture as to what is driving up the mental health statistic in the marketplace.

Could it be that it’s the 24/7 society? The fact that we never switch off, that we’re on social media all the time, on email and technology. Could it be partly a result of high pressure working expectations, and driven individuals? Could it be the fact that change is now a permanent state? So it’s not unusual, it is a permanent state of working methodology now. And individuals are by their nature at different levels and different abilities in terms of coping with resilience and those sorts of pressures.

So this slide is a really useful piece of grid research of SMEs, and some of their thinking and observations this year about the challenges that they have, and what we’ve also done on the slide is to give you a sense of what the group income protection response is to those questions. So let’s take a look. You might be surprised to hear that during 2017 17% of employees were absent from work for more than four weeks. So in additional to paying out benefits to more than 15,000 families, insurance companies returned almost 3,000 employees to the workplace. Only 28% of employees surveyed felt that they could not survive for more than one month on statutory sick pay without making cutbacks.

Fortunately for 2.4 million employees they benefit from being part of a group income protection scheme and enjoy all the services this provides to help remove financial worries whilst they’re cared for during an enforced absence. And costs related to presenteeism, those employees who are at work but unproductive, is estimated to be costing twice as much as the cost of absenteeism by the Centre for Mental Health. To help with the cost of absence the group protection marketplace paid out more than £467m in benefits in 2017 to employers. And finally the average cost of replacing an absent employee is a staggering £30,614, although we would all recognise many employers try to carry on by spreading the workload in the short term to avoid that cost; the value of benefits insured by group income protection providers stands at £86bn.

PRESENTER: So how can group income protection help?

COLIN FITZGERALD: We’re all very aware that the mental health debate is raging in society at large, and whilst we’d like to think that attitudes towards mental health are improving, it’s a sad fact that employers are far more optimistic about employees’ willingness to talk about mental health in the workplace. It’s far easier to talk about a broken leg or a virus than it is to declare a mental health episode or a concern. And this is a real concern to us at large. Legal & General, we alongside other insurers, have specifically targeted the stigma associated with physical and mental ill health, and we’re committed to removing that stigma in any way that we can.

So, one of the key features of the development of the product over the last 10 years is the richness of the provision and the services that sit within the product. And this starts right at the beginning in terms of employee assistance programmes and making sure that the employee, the line manager and the employer has access to hints and tips, anonymised services, that are available at all times 24/7 365 for employees and for their line managers. So there’s a range of counselling services, and there are a range of tools and training programmes, some of which are paid for, but many of which are embedded in the services. And these might include access to mental health first aid, coaching or training programmes. So these are designed very much to keep the employee well and at work.

PRESENTER: How do employers engage with employees?

COLIN FITZGERALD: Well it’s excellent to see from the slide that recognition is the top of the list here at 29%. So employers are really looking to endorse the contribution that they’re looking for from their employees. Number two is flexible working. And there’s hardly an employer that’s not talking about flexible working these days. But again this is something that aims to engage the employee much more and work to their agenda as much as to the employer’s. So 27% is really an excellent second item here. And amusingly but positively I think we have to say exercise and nutrition are featuring third. So that’s quite clear that employers are recognising their need to encourage good behaviours at work and good health at work.

PRESENTER: So what would you say is the impact of presenteeism at work when sick people actually come into work?

COLIN FITZGERALD: Well I think there’s a fine line between a commitment to getting the job done and bringing even a cough and a cold and a flu into the office. We’ve all seen and witnessed scenarios where at some point the manager has to ask the individual to go home and look after themselves. And there is, and that’s a really important decision to make. Teams tend to be smaller these days. They tend to be under pressure on deadlines. And if you have somebody who’s brought a sickness into the office, they may well struggle through their own piece of work, but then have impact on the whole team. So we’re talking about lost productivity, reworking, lower morale, and potentially an illness or a condition or a circumstance lasting for far longer than it should do because of the intermittent nature of the recovery. So it will take a lot longer to recover and for other people around them to recover.

Potentially, you could be talking about impact on service, impact on productivity, which could ultimately affect customers and your own ability to provide the services that you’re looking to provide. So it really is very considerable from what could be a fairly notional understandable first step.

PRESENTER: So what are employees saying about group income protection?

COLIN FITZGERALD: Interestingly, the grid research that we’ve recently been looking at, and this is an SME research, indicates very clearly that 40% of employees prefer to select a group income protection offer over group life and over critical illness. So it’s quite clear that employees are looking for this. Interestingly in the same piece of research 59% of employers acknowledge that they understand what a group income protection product is. But rather concerningly 60% when asked really couldn’t describe the full and rich nature of the services that were provided within it. So I think this represents a really important opportunity for intermediaries to educate their corporate clients in the full richness of what the absence management solution looks like.

PRESENTER: Why do companies buy group income protection?

COLIN FITZGERALD: Well in addition they actually also are very interested in the financial security of their employees, as well as their wellbeing, so that’s excellent to see. And there are a number of other points that come in our recent survey. Employees these days are looking for an employer that does much more than pays them simply a salary. The employer is keen to make sure that they can meet their contractual obligations, and therefore they’re looking for an expert partner to help them to do that. They want to reduce the impact of absence when it does strike, and they see the usefulness of group income protection in achieving that. And very importantly they’re looking for cost effective solutions, and they’re looking for assistance with return to work support. So that really does go to the heart of what we’ve been talking about.

PRESENTER: And what are the reasons people are not buying group income protection?

COLIN FITZGERALD: Well interestingly employers are saying that their employees are not actually asking for the cover, which seems a little strange. The second item is cost. So there is a perception that this benefit is costly. And there’s also a perception that actually it’s difficult to administer and it’s hassle that the employer isn’t equipped to deal with. So I guess some fairly obvious reasons not to buy. And what they’re also saying is they don’t have time to give the subject real consideration. So we have to make sure as advisers and providers that we’re really pushing the benefits to them. But in addition to that they tell us that there is a lack of understanding about the value it can provide, as I say regard it as a complicated benefit. And finally with all of the pressures of auto-enrolment and compulsion, it’s not a compulsory benefit. They don’t have to provide it, so those that would rather not are choosing not to.

PRESENTER: How does group income protection compare to state benefits?

COLIN FITZGERALD: Well this is a crucial point. And it’s a myth that we want to bust here and now in this presentation that the state really is not equipped to provide. We know that state benefits are under pressure and are simply not sufficient to meet the requirements of society across a range of those benefits. So let’s just refer to the slide that gives us this level of complexity and comparison. In this example we’ve used an average annual salary of £28,600 as the median annual income in the UK in 2018 for full-time employees. Bar one of the illustration describes the benefits that you would receive from the state. And as we all know the government has been on a mission for many years to address the costs of state benefits to those who are unable to work and the focus has been to make work pay.

On the basis that the state wants to incentivise work over a reliance on the state, and the tests are regarded as difficult for most claimants to meet, and there’s been a lot of negative comment in the press about the assessment agency conducting the processes. The benefit assessment regime is now tougher and more rigorous, so there is a significant chance that claimants will not be successful. A successful assessment; however, will result in an annual payment of £5,269.55. The benefit is reviewable. When this benefit is added to the second average salary it results in a total income to the household of £33,869.55, which results in a shortfall of £6,930.45 when assessed against our third measure on the slide. And we’ll come back to that third measure in a moment. In the assessment of state benefits if you or your partner have savings of £6,000 or less, then your benefits will not be affected; but if you or your partner have savings of £16,000 or more you will not be entitled to any state benefits. So that’s fairly clear.

Our third reference point here is the Joseph Rowntree Foundation. That’s an independent social change organisation, working to solve UK poverty. The JRF has established an index of minimum income standard, and in 2017 a couple with two children need to earn £20,400 each to meet this MIS or minimum standard. This is based on what members of the public think people need to achieve a socially acceptable standard of living. So £40,800 as you can see on the screen required to run a household with two earners. And that takes us to line four, the group income protection benefit, which we’ve assessed at 80% of salary payable after 26 weeks of absence on an average annual benefit of £22,800. When we add this to the second income on an average salary, the total household income equates to £51,480, which is £10,000 above the Joseph Rowntree minimum income standard.

PRESENTER: So what exactly does group income protection provide?

COLIN FITZGERALD: So an intermediary can provide cover from 10 lives upwards to a group of employees insured under an employer scheme. The percentage of salary can range from a low percentage of salary right up to 80% of salary, and this then is the replacement ratio or the salary that would be paid in claim after 26 weeks of absence. The time period for the payment can be as low as two years, but could be as high as state pension age. So the claim could go all the way to state pension age, and you can image the premium is related to those criteria, and in addition to that the definition of the benefit payment. So how restrictive or generous that definition might be.

There’s also the ability to provide pension scheme contribution cover and to cover employers’ national insurance contributions. And the item of cost comes up quite a lot, and we’ve referenced this. Generally speaking the cost will be somewhere between £1, £1, 50 percent of salary roll; it could be as low as 25p of salary roll. And these costs are reviewed on a two yearly basis. The plans are easy to access, they provide high levels of cover and low levels of medical underwriting, and these are important differences to the individual marketplace. Premiums are treated as a trading expense for employers and are taxed in the normal way in the hands of the employer before they reach the employee.

PRESENTER: So what does it offer above benefits?

COLIN FITZGERALD: So I’ve referred to the comprehensive nature of the benefits provided. All providers will provide some form of employee assistance programme. And the employee assistance programme can be communicated to employees in a number of different ways, digitally or face to face or by paper communication, or on intranets. It provides a really rich seam of services. So, as you can see on the slide, and as we’ve been referring throughout, there are a significant range of additional services, both within the contract and attached to the contract. But be sure to check the terms and conditions of any provider that you provide the cover with, because they will be different by provider. So central to wellbeing is wellness at work and preventing employee absence. And the employee assistance programme is designed to achieve just that.

The core purpose of the EAP is to assist in the management of absence and increase staff retention, whilst meeting the employer’s duty of care by providing a range of services that can be accessed by managers at work when they’re concerned about an employee, or by the employee themselves. As you can see there’s a full range of services to hand from managing your work-life through the challenges of personal and family life, alongside practical hints and tips to deal with challenges that can creep up on you when you’re busy living your life, and sometimes be quite overwhelming and take people by surprise. The benefits of the EAP service usually include structured counselling through a range of mediums as appropriate, online health risk assessments, online cognitive behavioural therapy, legal, medical and financial information and support, and life support to aid in finding childcare or elder care amongst many others.

In the past the EAP has been regarded by employers as something of a tick box exercise. But thankfully employee usage rates of EAP services have increased over recent years. So it’s essential that you make sure your employees are fully aware of the range of services that this provides so that it can make a really good contribution to their ability to remain healthy and at work. There are training modules and training packages in addition to the standard EAP aimed at managing absence, and they may be at an additional cost.

PRESENTER: So what does that look like from a sick person’s perspective?

COLIN FITZGERALD: They’ve used the services of the EAP and unfortunately they’re now actually going to be going off work. So the provider marketplace provides a range of expert advice and support of a vocational nature, which comes into play immediately. And the initial notification of an absence, and for something like mental health or cancer or musculoskeletal it would be within four weeks in general, there’ll be a triage process that kicks into place immediately. What then happens is that we’ll investigate and explore the root causes of the absence. So that means that there’ll be information flowing between the employee, the employer, the treating physician and the insurance company, to really fully understand what’s happened. It may be that there’ll be telephone support from the insurance company. It may be that a face-to-face visit is the right thing to do. And it may be that the employer is also visited to fully understand what’s really caused the problem.

Most insurance companies operate a model called the biopsychosocial model. And the bio element is very much about really understanding the medical condition that’s actually caused the absence. What’s the treatment path, what is the clinical view of the absence? But very often we’re in a situation where the psycho is the way the individual approaches their absence: how are they able to cope with that individually, what’s their support mechanism like? And the social is very much more about their social interactions. So it’s very much, absence is very much a 360 degree construct of understanding the various parts that are playing here.

PRESENTER: And what does this support mean to the employer?

COLIN FITZGERALD: It’s a fact that most employers are relying on their line managers to manage their staff absence, in a way that they may not be equipped to do. They also, if they’re an SME, may not have an HR department to rely upon. So what they’re securing by buying a group income protection policy is a wealth of expertise that sits behind that. The insurance company will communicate with the line manager to understand how the absence is manifesting itself and what is causing it, and will then make suggestions and take the manager on the journey with the employee, because there are a range of outcomes. What we all want to achieve is a sustained return to work at the right time, because it’s in everybody’s interest and especially the employee’s, but the employer will need support in that.

It may be appropriate to introduce reasonable adjustments to the workplace or the individual’s working practices or home life that will allow them to be able to overcome certain short-term difficulties in getting back to the workplace. And what the insurance company’s looking to do is solutionise if possible what the issue is, to look at the likely duration of the absence, which will probably be related to the condition, and to make sure that there is financial recompense to the employer so they can continue to run their business. It might not be possible for the individual to return to work, and so we’ve got to think about other options. And there are tools in the kitbag of the insurance company that will help the employer to come up with various different solutions, which might include transferrable skills analysis, so that a return to work with another employer may be possible. I would just say continuation of the benefit does rely on the employee being employed.

It may be appropriate for the insurance company to recommend a form of paid treatment, and that might include a referral to physio, or more likely these days a referral to CBT, because the GP surgery and the NHS have probably got quite a long waiting list for that type of intervention. It’s also extremely important throughout the process that the insurance company connects all of the elements of this very complicated jigsaw, that’s to say the employee at the centre, the employer, the treating physician, and of course our own processes, and keeps that communication going throughout. So all of our expert partners as an industry are connected and not confusing the employee.

PRESENTER: Well now let’s turn to Lorna to get an example of an employee who successfully went through the process we’ve just discussed.

LORN BERRY: We received notification from an employer that an employee had become absent with stress, anxiety and depression. The employee was covered under the group income protection scheme, and the employer informed us that the employee had become absent due to personal circumstances, and they were concerned for his welfare after being made aware that a suicide attempt had been made. The employee was referred directly through to our rehabilitation team, who contacted the employee by telephone in order to outline what support was available and obtain further information. The employee advised us that he had received some support, some crisis support from NHS services, however was on the waiting list for further treatment.

The rehabilitation specialist conducted a risk assessment, given that we were aware that the member was quite vulnerable and to have made a suicide attempt. We established that there was no immediate risk, however did provide the employee with contact details in case he required those in the future. The employee was referred through to our partner for a psychological assessment and ongoing treatment should this be indicated. He commenced CBT therapy within the week, and he was keen to return to work. Unfortunately on this occasion the rehabilitation specialists involved didn’t feel that he was currently ready for a return to work and spoke with the member openly about delaying the return to work until his symptoms had stabilised in order that he didn’t become absent again.

The member was contacted by our provider and commenced treatment. The rehabilitation specialist remained in contact with the employee and the employer in order to keep them up to date with progress. The employee continued with treatment, and we remained in contact with both the employee and the employer. Return to work discussions commenced with the employee and the employer, and the employee returned to work six weeks following the referral through to the rehabilitation team. We looked at support from a perspective of ongoing treatment with our provider, and a grade return to work plan. The employee completed treatment. On discharge from our provider he was provided with a relapse prevention programme, which was shared with the employer. He was also provided with access to our silver cloud programme for 12 months.

Our support with treatment meant that the employee wasn’t waiting for NHS treatment. He returned to work at a time that was right for him, rather than him returning to work prior to this, which potentially could have put him at risk and led to a further period of absence. The employer was grateful for our support. Without our early intervention it’s likely that the employee would have rushed the return to work, which would have led to a further period of absence or even worse put his health at risk. The support that we offer through funding psychological treatment and our rehabilitation team allowed the member to return to work quickly and safely.

PRESENTER: How successful has group income protection been?

LORN BERRY: Well I think you’ll remember that at the beginning of the presentation we were looking at the update of market claim statistics. So we know that £467m in benefits was paid in annual income benefits, was paid to families and individuals and employers during 2017. And that was paid to 15,322 families, so some significant payments of benefits. However in addition to that we’ve also covered the fact that almost 3,000 individuals were successfully returned to work in the same year. At Legal & General we’re very proud of the fact that 582 or 20% of those return to works came from our good work with our customers, and they benefited from both the financial short-term return of the product, and also the considerable services to ensure that return to work was successful.

And you can see on the screen that we’ve got a yellow field and a blue field indicating return to work before the end of the deferred period, that’s 26 weeks of absence, and the blue field is for the period after. The individual is in claim at that point, but still receiving support. And what that tells us is that actually for mental health 85% of absentees will be returned in an L&G context, with 15% of those claimants maintaining benefits thereafter. If we also consider our musculoskeletal absentees, 80% of those will be returned to work in the course of the last year. When we look at the cancer statistic, as you can see on the screen, that’s about 48%. But that’s quite understandable, because clearly cancer is a complex condition, it isn’t always appropriate, and certainly we wouldn’t force a cancer sufferer to return to work unless it was medically advisable and within the right circumstances.

PRESENTER: Colin, we are almost running out of time. So what would you say are the key takeaways for the viewers today to take away from this session?

COLIN FITZGERALD: Well our aim today was to comprehensively cover the absence management journey and relate it to the richness of the solutions that sit within a group income protection offer. And I think we’ve done that today. If you look at the slide, we’ve talked about supporting employee wellbeing at work to prevent absence, and promote good health behaviours through effective deployment of the employee assistance programme. We've talked about providing a structured and comprehensive programme to help the employer to prevent and then manage absence; providing claims and locational experts to employees and their line managers; uncovering root causes of absence, working with the employer to manage pragmatic solutions and building sustainable return to work programmes; paying income protection benefits to employees for as long as appropriate, to alleviate financial distress on the part of the employee and the employer.

So ultimately what we’ve been seeking to achieve is to provide the employer with the ability to run their business and rely on third party experts to manage their way through the minefield that is absence management, and at a minimal cost. I hope you’ll agree that with 10,000 policies covered, 240,000 SME employers, this represents a significant opportunity for intermediaries.

PRESENTER: Colin, thank you.

PRESENTER: In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you’ll be able to understand and describe how to provide an effective absence management service should absence occur; how group income protection compares to state benefits; and what group income protection consists of. Please complete the reflective statement to validate your CPD.